Economic Outlook: Mixed signals

If one is to be guided by the stock market movement of recent weeks, it points to a strong economic revival in Indian as well as World economy. But the ground data suggests that all is not well to get that euphoric about economic revival. First, the major positives for Indian economy are:

• GDP growth for June '09 quarter has bounced back to 6.1%, after languishing for 2 quarters.
• The IIP (Index of Industrial production) numbers at 6.8% for July '09 (although slightly lower than June '09) look quite promising.
• There has been a squential improvement in exports & imports, despite negative growth as compared to corresponding period of last year.

However, there are certain threats which still loom large over a speedy economic revival:

• The overall growth in Bank deposits & Bank credit have steadily declined to a growth of around 20% and 14% respectively
• WPI inflation has climbed to a positive territory (0.83%), after remaining in negative zone for over 3 months. The inflation measured as per CPI for industrial workers has grown at over 11% in August '09. WPI inflation is expected to touch 7% by march '09
• The monsoon season has just eneded with a deficit of 23% over the long term average, its worse performance in 30 years. This will put additional pressure on food grain prices.

Global economic indicators pose a much greater threat to an early economic revival:

• US unemployment rate for Sept. '09 at 9.8% is the highest since 1983.
• IMF has warned of further write downs from banks in Europe for atleast a few more quarters.
• The continuing weakness of US $ is a matter of concern for many countries, who have put money in US treasury.

These indicators suggest that although the worst may be over for world economy, revival at best will be slow. Investors shuold not hope for miracles like a V-shape recovery any time soon.